Handling Customer Complaints

One of the characteristics separating excellent firms from mediocre ones is how they handle, and even encourage, customer complaints.

A customer complaint presents both a danger and an opportunity, depending on how it is handled. Since it is virtually impossible for a firm to remove all defects from its work – and especially in its service delivery processes – handling complaints when they arise provides a competitive differentiation for your firm and enhances customer loyalty and goodwill if they are handled properly.

Furthermore, complaints handled quickly result in higher loyalty, and for that reason alone, one of the highest-value activities a firm can add to its repertoire of policies is an effective customer complaint recovery system.

What is astonishing to realize is that customers who complain can become more loyal than if they had no problem at all – if the complaint is handled quickly and resolved to their satisfaction. Marriott found the following percentages of intent to return when customers had a problem during their stay:

No problems during the stay = 89 percent return rate.

Had a problem during the stay and it was not corrected to customer’s satisfaction = 69 percent return rate.

Had a problem during the stay and it was corrected to customer’s satisfaction, before he or she left the property = 94 percent return rate.

This is why it is so important to resolve all customer complaints quickly, or at least take action to resolve them immediately.

Complaints are not like fine wines; they do not age well. Customers complain because there is a gap between what they expected to happen and what actually happened. Once they experience a problem, their expectation of having it resolved quickly is actually low (which is precisely why most customers do not complain – they think it will do no good), so a complaint is an excellent opportunity to improve their condition and turn the experience from a moment of misery into a moment of magic. You will redirect their focus on the satisfying outcome, rather than the original problem.

The golden rule when it comes to customer complaints: it is not who is right; it is what is right. Carl Sewell, author of “Customers For Life: How to Turn That One-Time Buyer into a Lifetime Customer,” has this advice: “Everything you need to know about handling mistakes you learned in nursery school: acknowledge your error, fix it immediately and say you’re sorry. Odds are, your customer, like your mom and dad, will forgive you.”

Hal Rosenbluth, CEO of Rosenbluth Travel, returns all commissions earned on any arrangements his company makes incorrectly, a policy almost unheard of in the travel industry. He explains the benefits of this policy in his book, “The Customer Comes Second and Other Secrets of Exceptional Service:”

“It’s better to spend money refunding clients when they are not satisfied than to forfeit money in lost accounts for the same reason.”

“Many of our service-guarantee refunds have been because of supplier error [such as airlines, hotels and rental car agencies], but we returned our commissions to our clients because we hold ourselves responsible for the entire process.

When analyzing customer complaints and defects, ask how, not why. “Why” questions tend to generate excuses and justifications, while “how” questions will lead to knowledge to correct the problem. “How can we prevent this from happening again?” is a much better question than “Why did this happen?” Also, follow this five-step recovery process to deal effectively with all customer complaints:

1. Apologize. Say I am sorry, not we are sorry.

2. Urgent effort. Fred Smith, founder of FedEx, follows the “Sunset Rule:” “The sun will not set on an unresolved customer or employee problem that is not dealt with in some way.”

3. Empathy. Show understanding and compassion; fix the customer before fixing the problem.

4. Compensation. Be generous and show remorse; better yet, ask the customer how he or she would like it to be fixed (usually, the request is less than you would have given up).

5. Follow-up. Learn how the customer feels about the situation and provide closure.

The Ritz-Carlton gives its team members great latitude in resolving customer complaints, with each one informally authorized to spend $2,000 on solving customer problems. In the Ritz-Carlton Basics, a set of twenty guiding principles every team member is held accountable for, number 13 states: “Never lose a guest. Instant guest pacification is the responsibility of each employee. Whoever receives a complaint will own it, resolve it to the guest’s satisfaction and record it.” This “ownership” of customer complaints is quite effective, and every firm should have this attitude with respect to any customer problem.

Customer complaints can be more valuable than customer compliments because they provide the firm with information on aspects of its service delivery that need to be improved, a second chance to gain the customer’s business, and an opportunity to actually increase the customer’s goodwill and loyalty.

Given these facts, firms should actually provide an incentive for customers to complain, and in my next post, I will share one of the most effective strategies to do just that.

Editor’s note: This was part 2 of Ron Baker’s 3-part series. To read part 1 on "How Accounting Firms Can Create Customer Loyalty,” click here.

About the Author

Ron Baker

Ron Baker started his CPA career in 1984 with KPMG's Private Business Advisory Services in San Francisco. Today, he is the founder of VeraSage Institute — the leading think tank dedicated to educating professionals internationally — and a radio talk-show host on the www.VoiceAmerica.com. His show, The Soul of Enterprise: Business in the Knowledge Economy, can be found here: www.thesoulofenterprise.com.